You are hereHome > Tools & Tips > Quicken Tips > Real Estate & Personal Finance: How to Get a Mortgage on a Low Income

Real Estate & Personal Finance: How to Get a Mortgage on a Low Income

Real Estate & Personal Finance: How to Get a Mortgage on a Low Income

A low income doesn't prevent you from getting a mortgage. Ultimately, your income determines how much you can borrow instead of whether or not you can borrow. While the more you make the more you can borrow, if your other debts are manageable, you won't need a very high income to buy a comfortable home.

Know Your Ratios

"Lenders look at two numbers to determine your ability to buy a home -- your credit score and your debt-to-income ratio," explains mortgage broker Jonathan Mosca. "To calculate your DTI, they divide all of your debt payments into your monthly income." In other words, the debt-to-income ratio looks at how much of your money is being used to pay debt that you already have. The loan-to-income ratio is similar to the debt-to-income ratio but looks only at how much of your monthly income will go to make the payments on the loan that you're trying to get.

While DTI standards vary among lenders, the Federal Housing Administration, or FHA, has a low-down payment mortgage program with a maximum DTI ratio of 43 percent, with some wiggle room. At the same time, the agency also has a loan-to-income ratio of around 29 percent. What this means is that if you make $40,000 per year, which is roughly 80 percent of the U.S. median household income as of February 2013, the FHA will lend to you up to a total monthly debt load of $1,433 with a monthly mortgage payment of up to $967 per month.

One Secret: Owe Less

"The secret to getting a mortgage is to cap your monthly debt payments at the difference between your DTI and LTI ratio," Mosca explains. For example, if you have the aforementioned $40,000 of income, your DTI supports $1,433 of debt, and your maximum loan payment is $967. If you have more than $466 in payments on credit cards, personal loans, vehicle loans and car debt, it'll cut into your maximum loan amount. For instance, if you have $600 in monthly payments, your mortgage payment will be capped at $833. For comparison, the monthly payment on a $100,000 30-year mortgage at 4.5 percent with $1,400 in taxes and $2,300 in mortgage and property insurance is $831.68.

Another Secret: Make More

While it's not always possible to make more money out of the blue, you can increase your income by buying a home with another borrower. "Adding a qualified co-borrower gives you more income to help you qualify, but make sure that they don't come with their own debts or credit issues," warns Mosca. Whether you have a family member, a spouse or a significant other cosign, his income gets added to yours when the lender calculates how much loan you can afford. "Remember that they'll be responsible for the loan, too," cautions Mosca.

Borrow Less

If you're starting out in home ownership with a relatively low income, you might not be able to buy as much house as you will when your income grows or when you have equity to use as a down payment. Instead of buying a brand new home, consider a less expensive used home. If you can find one that is in good shape but is a bit outdated, you'll save some money. You will also be buying the opportunity to increase the value of your home by updating it as you live in it. Mosca points out, "This doesn't just help you qualify for a mortgage now -- it also helps you qualify for a bigger home the next time around." If you're not an experienced home buyer, consider skipping homes that need major rehab and focus only on homes with cosmetic problems.

Take the next step towards your financial goals

We can help choose the right Quicken for you

† Limited time offer of 40% off the list price applies only to the purchase of Quicken Deluxe, Premier, Home, Business & Rental Property for the first year only when you order directly from Quicken by March 20, 2018, 11:59 PM PDT. Offer good for new memberships only. Offer listed above cannot be combined with any other offers. Terms, conditions, pricing, features, offers and service options subject to change without notice.

Monitoring alerts, data downloads, and feature updates are available through the end of your membership term. Online services require internet access. Third-party terms and additional fees may apply. Phone support, online features, and other services vary and are subject to change. 14,500+ participating financial institutions as of October 1, 2017.

Standard message and data rates may apply for sync, e-mail and text alerts. Visit www.quicken.com/go/apps for details. Quicken app (“App”) is compatible with iPad, iPhone, iPod Touch, Android phones and tablets. Not all Quicken desktop features are available in the App. The App is a companion app and will work only with Quicken 2015 and above desktop products.

Quicken Bill Pay (Bill Payment Services provided by Metavante Payment Services, LLC) is included in Quicken Premier and above and is available on QuickenBillPay.com as a separate add-on service in Starter and Deluxe. 15 payments per month included in Premier and above.

Purchase entitles you to Quicken for 1 or 2 years (depending upon length of membership purchased), starting at purchase. Full payment is charged to your card immediately. At the end of the membership period, membership will automatically renew every year and you will be charged the then-current price (prices subject to change). You may cancel before renewal date. For full details, consult the Quicken License Agreement. You can manage your subscription at your My Account page.

30-day money back guarantee: If you’re not satisfied, return this product to Quicken within 30 days of purchase with your dated receipt for a full refund of the purchase price less shipping and handling fees. See www.quicken.com/30dayguarantee for full details and instructions.

Quicken for Mac software and the Quicken mobile app are not designed to function outside the U.S.

The VantageScore provided under the offer described here uses a proprietary credit scoring model designed by VantageScore Solutions, LLC. There are numerous other credit scores and models in the marketplace, including different VantageScores. Please keep in mind third parties may use a different credit score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.

VantageScore®, Equifax®, Experian® and TransUnion® are registered trademarks of their respective owners.

EQUIFAX is a registered trademark of Equifax Inc. The other Equifax marks used herein are trademarks of Equifax Inc. Other product and company names mentioned herein are property of their respective owners.